Well, it’s not a leap year, so we can’t officially celebrate it to the date, but we’re right up against the one-year mark for one of the few stars in actively managed exchange-traded funds: the Pimco Total Return ETF (NYSE:BOND).
BOND manager Bill Gross — also the manager of the world’s largest mutual fund, the Pimco Total Return A (MUTF:PTTAX) — is affectionately known as the “Bond King,” though he has a history of smart calls on the stock side of things. For instance, in 1999 he predicted the impending dot-com bubble, and in 2005 he got out in front of the subprime mortgage crisis.
But the pull here is Gross’ keen sense for fixed income — a knack that led Morningstar to name him the “Fixed Income Fund Manager of the Decade” in 2010.
BOND holds a diversified portfolio of bonds across a variety of maturities, but with a portfolio duration of just under five years (duration is a measure of interest rate sensitivity), shorter-term investments are more the rule. In fact, just more than 7% of assets are invested in treasuries that mature in October and November 2013, while another 2% matures in December. The rest of the fund is invested in mortgage pools — a deviation from PTTAX, which invests in mortgage futures, and also uses other derivatives to help its performance.
BOND apparently doesn’t need the help. In the year since inception, Gross’ ETF has acquired north of $4 billion in assets under management, drawn in not just by the name, but the success — BOND got hot early and has returned almost 12% in a year, vs. 3% gains in the benchmark Barclays U.S. Aggregate Bond Index.
More notably, it also has beaten out big brother PTTAX. That’s thanks in part to a disparity in fees — BOND charges a cheap (for an actively managed fund) 0.55% in expenses, while PTTAX charges a still-reasonable 0.85% but also a 3.75% sales charge. All told, BOND has outperformed PTTAX by about 440 basis points.
Not too shabby for a fund that had its doubters.
BOND’s popularity has already spurred PIMCO to work toward launching actively managed ETF versions of other mutual funds, including Real Return (MUTF:PRTNX), Low Duration (MUTF:PTLAX) and Diversified Income (MUTF:PDVAX). And earlier this month, PIMCO launched an actively managed foreign currency ETF (dubbed FORX).
With inflation ticking up, there are bound to be some challenges. However, Gross’ investment decisions have so far paid off handsomely, so it’s fair to say the Bond King still is one step ahead of the (yield) curve.
That should bode well for BOND in the years ahead.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he was long PTTAX.